Econ 101

Posted on Sunday, July 18th, 2021

I have spent part of my summer tutoring our middle son in Economics 101. I know what you are thinking – Fun time at the Reilly’s. My son was having trouble making sense of Econ 101. I showed him that it really is basic. They just try to make it sound hard. They fill their definitions with multiple syllable words in order to make it all sound impressive and confusing. Much like economists bankers like to obfuscate and confuse. In Goldman Sachs’ latest earnings report we see that the investment bank has been “harvesting its balance sheet equity portfolio”. Just like Econ 101 they are just trying to make it difficult. In plain English, they are selling their stocks in size. They have sold 25% of their portfolio in 2021. Goldman is selling. Should we?

We noted last quarter that the first two weeks in July is the best two week period of the year historically for stocks. We also noted that if the market went up in that period we would not be surprised. The issue or the important signal to note would be if markets DID NOT go higher at the beginning of the quarter. The market passed the first two weeks in July test – barely. The S&P 500 was up 0.21%. That is very disappointing for the bulls. The market has been disappointing in general of late. Market internals have had a noticeable deterioration. The sentiment indicators are still full of bulls but the bears have had their chance to gain control and have not taken it.
As market internals deteriorate we are on guard for a change in trend and rise in volatility. We have stuck with the higher trend since the pandemic in spite of all time high valuations. We have a proprietary indicator that, given the current monetary/fiscal regime we are under, should alert us to danger on the horizon.  Our proprietary indicator has now ticked the first box. If it ticks the other box we will be taking down exposure and placing hedges. This could occur as early as tomorrow and would portend a large move in the next two months. They say never predict time and price. We are not predicting anything. We are just preparing for a potential storm and battening down the hatches if our indicator flashes red. Right now it is yellow.

I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd  Blankfein

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

 

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

 

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.